13.00: The Footsie extended its gains to over 1 per cent in lunchtime trading, tracking stronger gains by European markets on optimism that a Greek bailout deal could finally be agreed this weekend, and after a rally by Chinese stocks overnight.

By mid session, the FTSE 100 index was 82.3 points, or 1.2 per cent higher at 6573.0 while the Dax 30 index in Frankfurt jumped 2.0 per cent and Paris’s CAC 40 index advanced 2.3 per cent as traders awaited fresh reform proposals out of Athens, due by midnight, ahead of last-gasp Eurogroup meetings this weeked.

Sentiment was boosted by hopes for a last-ditch attempt to save Greece from bankruptcy and keep it in the euro after Athens yesterday applied for a third bailout through the European Stability Mechanism.

Hold again: There was little reaction to the widely expected decision by the Bank of England to keep UK rates on hold, with uncertainty over Greece expected to have reinforced the case for maintaining rates at 0.5%

The mood was also helped by a rebound in highly volatile Asian markets, led by gains on China's main index, which jumped after fresh government measures to stabilise the market. A flurry of measures announced yesterday included a government order to state companies and executives to buy shares.

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There was little reaction to the widely expected decision by the Bank of England to keep UK interest rates on hold at 0.5 per cent once again, with the uncertainty over Greece expected to have reinforced the case for keeping rates at historic lows.

Martin Beck, senior economic advisor to the EY ITEM Club, said: ‘Today’s decision by the MPC to keep Bank Rate at 0.5 per cent concluded the 76th successive meeting to announce no change in interest rates. However, hawkish noises recently emanating from the MPC imply that the current unanimity could break down soon.

‘Looking ahead the odds of the majority of the Committee voting for a rate rise anytime soon look slim. Inflation is set to remain close to zero for much of the year and recent falls in commodity prices threaten a return to deflation. At the same time sterling’s ongoing strength is making life increasingly difficulty for exporters.’

On currency markets today, the pound was firmer today, bouncing 0.5 per cent higher to €1.3938, and edging up to $1.5374 drawing support from strong UK housing data again today and Budget yesterday that was not as fiscally tight as many investors had expected.

The Royal Institution of Chartered Surveyors’ monthly house price balance jumped to +40 in June from +34 in May, the highest since July 2014 and a bigger rise than most forecasters had expected.

Housebuilders found support from this further upbeat survey on the UK housing market – coming after a strong report yesterday from mortgage lender Halifax – with the sector bouncing back after falling heavily yesterday on the Budget plans to restrict tax relief for buy-to-let landlords.

Barratt Developments was a strong performer, up 3 per cent or 17.3p to 611.8p after it also revealed that it expects a 45 per cent leap in annual profits to around £565million.

Rivals also made good gains in the top tier in a sector-wide bounce back, with Persimmon 67.5p higher at 1,943.5p and Taylor Wimpey ahead by 6.3p to 182.5p.

But among the few blue chip fallers, retailers continued to suffer a post-Budget hangover on worries over rising staff costs from the pledge to introduce a new living wage for over 25s, with Sainsbury down 2,8p at 251.7p, and Next losing 145p at 7.335p. Next was also hit as it turned ex-dividend, meaning investors are no longer entitled to the latest pay-out.

Mid cap department stores group Debenhams was another casualty, dropping 2.8p at 85.1p in the FTSE 250, impacted too by a downgrade in rating to neutral from buy by broker UBS.

But elsewhere on the second line, retailer SuperGroup - the owner of the Superdry fashion brand - was enjoying better fortunes, up 5 per cent or 67p to 1,308p, after posting strong current trading with slightly higher annual profits and unveiling a joint venture deal to take the brand into the Chinese market.

11.00: The Footsie extended its gains as the morning session progressed, buoyed by strength in European markets on hopes a debt deal is still possible for Greece, as well as by an overnight rally from Asian stocks after the sell-off in China shares abated

By mid morning, the FTSE 100 index was up 60.5 points, or 0.9 per cent to 6,551.2, while the Dax 30 index in Frankfurt gained 1.7 per cent and Paris’s CAC 40 index jumped 1.9 per cent as traders awaited fresh reform proposals out of Athens, due by midnight.

On currency markets, after a recent rally, the euro edged lower versus both the dollar, at $1.1025, and the pound, at €1.39.46.

Miners rally: The rebound in China, the world’s biggest consumer of commodities, provided a lift to heavyweight mining stocks which led the charge higher in London

Sterling was also against the dollar at $1,5383 after minutes from the latest Federal Reserve policy meeting, released last night, seemed to push back expectations for a US interest rate hike until later this year.

The pound was also eyeing the latest rate decision from the Bank of England, due at midday, although no change is expected until next year.

Aside from Greek deal hopes, European markets were bolstered by a rebound in highly volatile Asian markets, led by gains on China's main index, which jumped after further government measures to stabilise the market.

The Shanghai Composite in mainland China surged 6.8 per cent, while Hong Kong's Hang Seng Index rose 4 per cent a day after suffering its biggest drop since the financial crisis. A flurry of measures announced yesterday included a government order to state companies and executives to buy shares.

The rebound in China, the world’s biggest consumer of commodities, provided a lift to heavyweight mining stocks which led the charge higher in London, with Rio Tinto up 28.5p at 2,513p, and Anglo American ahead 11.7p at 857.3p.

Housebuilders were also in demand, bouncing back from some post-Budget falls yesterday, thanks to a profits cheer from Barratt Developments.

Barratt’s shares rose 2 per cent or 9.8p higher to 604.3p after revealing it expects a 45 per cent leap in annual profits to around £565million.

This good news helped the sector recover after falling heavily yesterday on Chancellor George Osborne's plans to restrict tax relief for buy-to-let landlords, with blue chip Persimmon gaining 65p at 1,941p.

Clothing retailer to sugar producer AB Foods was the top Footsie gainer, however, adding nearly 5 per cent or 139p at 3,070p after a reassuring trading update.

AB Foods said revenues were flat in the 40 weeks to 20 June, but were up 2 per cent against the same period last year if currency moves are ignored.

But other high street retail chains and supermarkets were in the red as experts warned they faced significantly higher costs from the new living wage unveiled in the Budget yesterday.

Sainsbury's and Sports Direct were among retailers suffering the most on worries over rising staff costs, down 3.5p at 251.0p and 3p at 706p respectively.

Clothing retailer Next was the top FTSE 100 faller, dropping 160p lower to 7,320p also hit as it turned ex-dividend, meaning investors are no longer entitled to the latest pay-out.

Elsewhere, on the second line, infrastructure group Balfour Beatty shed 5 per cent or 11.2p to 217.2p after warning over its full-year results once again, which is set to see the group post another loss.

09.00: The Footsie was higher in early trade, propelled by gains in heavyweight commodity stocks thanks to a rally by shares in China after authorities made further efforts to halt a recent hefty sell-off in its stock markets, with European markets up on hope that a deal for Greece could be possible.

After an hour of trading, the FTSE 100 index was up 36.8 points, or 0.6 per cent at 6,527.5, extending yesterday’s 58.49 point rally, albeit having dropped over 150 points in the previous two sessions.

European markets were also higher, with the Dax 30 index in Frankfurt up 0.7 per cent and CAC 40 index in Paris ahead 0.9 per cent on some optimism over Greece with Athens formally applying for a three-year loan from the European authorities yesterday.

Rally continues: The FTSE 100 index was up 36.8 points in early trade, extending yesterday’s 58.49 point rally, albeit having dropped over 150 points in the previous two sessions

Naeem Aslam, market commentator at AvaTrade said: ‘The next few days will be important as the creditors will decide on Friday if they agree with the plan and if it is credible enough for them to consider that.

‘Then, on Saturday and Sunday euro group officials & finance ministers and their leaders will hold emergency summit and will deliver their verdict on a bailout extension for Greece.’

He added: ‘We still do not think that leaving euro is the base case scenario for Greece and maintain that the probabilities are just slightly over 50 per cent for Greece leaving the euro zone, to be precise they are at 60 per cent.

‘However, if the Greek government fail to submit the credible reform package they will not only have no hope of debt relief from their package, but then there is also a serious threat of them leaving the Eurozone. Therefore, all eyes are focused on the July the 20th deadline.’

Stocks in focus in London include:

AB FOODS – The owner of budget fashion retailer Primark and British Sugar has maintained its current year guidance after posting a small rise in year-to-date revenue. Shares gain 50p at 2,981p.

SUPERGROUP – The company behind the Superdry fashion brand said it has signed a joint venture deal to enter the Chinese market, as it posted a small rise in annual profit. Shares jump 3.5 per cent, or 44p to 1,285p.

BARRATT DEVELOPMENTS – The housebuilder said it expects to report a better-than-expected 45 per cent rise in profit for the year to end-June after it completed more homes than forecast, and helped by house price inflation. Shares up 3.0p at 597.5p.

BALFOUR BEATTY – The infrastructure group has issued a fresh profit warning, sating the group is likely to tip into another loss for 2015. Shares down 4.2p at 224.2p.

ASHMORE – The emerging markets-focused fund manager saw its assets under management fall by $2.2billion in its fourth quarter to $58.9billion, as client demand to pull cash more than offset a better market performance. Shares up 0.4p at 275.2p.

PREMIER OIL – The oil producer has increased its 2015 exploration budget by $20million to account for higher investments in its drilling campaign in the Falkland Islands. Shares gain 4.6p at 141.4p.

HAYS - The staffing group reported a 9 per cent rise in fourth quarter net fees after it saw strong demand in all three of its key regions, Britain and Ireland, continental Europe and Asia Pacific. Shares add 3.2p at 160.0p.

BWIN.PARTY – The online game firm said smaller rival GVC Holdings has offered to buy the company for 110p per share in cash and stock, valuing it overall at about £900million. Shares up 2.7p at 101.8p.

WPP GROUP – The advertising giant is to team up with General Atlantic on a bid for Tesco’s Clubcard business, Bloomberg News reported. WPP shares up 8p at 1,424p; Tesco shares up 0.1p at 202.0p.

NEXT – The clothing retailer is the top FTSE 100 faller, down 170p at 7,310p as the stock trades ex-dividend today, the only blue chip to do so.

WOLSELEY – The plumbing materials group gains 57p at 4,077p after broker HSBC upgrades its rating for the stock to buy from hold.

SMITH & NEPHEW – The medical products group’s shares get a boost as broker Berenberg ups its rating to buy from hold. Shares up 2.2 per cent, or 24p to 1,110p.

DEBENHAMS – Shares in the mid cap department stores operators fall 2.8 per cent, or 2.5p to 85.5p after broker UBS downgrades its rating to neutral from buy.

07.55: The Footsie is seen opening up by around 11 points this morning, extending yesterday’s rally thanks to a rally by Asian shares as Chinese authorities made further efforts to reverse a hefty sell-off in its stock markets, and on hopes that deal for Greece could still be possible.

The FTSE 100 index closed 58.49 points higher yesterday at 6,490.70, rallying with European markets after hefty falls in the previous session on some optimism over Greece with Athens formally applying for a three-year loan and European authorities having launched an accelerated review of the request.

Jonathan Sudaria, night dealer at London Capital Group said: ‘European equities are set to start with gains this morning as traders continue to be bucked by the reassurances that Alex Tsipras will submit a credible set of reforms to secure much need cash.'

Some relief: Greece's government, under prime minster Alexis Tspiras (pictured, centre) yesterday formally applied for a three-year loan, with European authorities launching an accelerated review of the request

He added: ‘Quite why markets are so trusting of him this time is beyond me. If all the other countless false dawns haven’t conditioned you not to place any faith in a deal being reached then the fact the recent referendum has tied Alex Tsipras’s hands so that he can’t offer anything palatable to the creditors in the way of new reforms, should surly convince you that the end is nigh for this peripheral EU member.

‘As we approach the weekend deadline, I think markets are woefully underestimating the likelihood of a Grexit.’

Most Asian shares recouped early losses today and rose as battered Chinese markets rebounded, as a slew of fresh measures drafted to stem the recent sell-off arrested their fall, at least for the time being.

China's securities regulator took the drastic step late on Wednesday of ordering shareholders with stakes of more than 5 per cent from selling shares for the next six months, in a bid to halt a plunge in stock prices which has chopped around 30 per cent of values since the end of June.

US stocks, however, posted sharp losses overnight, unsettled by the plunging Chinese stock market, with Dow Jones falling to a 5 month low, down 261.49 points to 17,515.42.

Matters were not helped by a technical error which caused an outage on the New York Stock Exchange, forcing trading to be halted for half the day. Investors also had minutes from the last Federal Reserve Policy meeting to digest.

London Capital Group’s Sudaria said: ‘The FED minutes show that we are unlikely to see a hike in U.S interest rates any time soon with all signs pointing towards the end of the year, with the central bank remaining cautious about the state of the U.S economy.’

The main macroeconomic focus today will be on the monthly Bank of England Monetary Policy Committee meeting, which will reveal its latest interest rate decision a midday, although no change is again expected at least until well in to next year.

Conditions in the property market were also under spotlight again, after the latest survey from the Royal Institution of Chartered Surveyors released overnight said homes in the UK are set to become increasingly unaffordable in the coming years as a shortage of properties for sale and to let continues to push prices and the cost of renting higher, a new survey suggests.

While the average stock of homes per surveyor fell to a record low of just under 50 in June, demand edged upwards for the second successive month, putting further pressure on prices, RICS said.

Surveyors expect both house prices and rents to increase by around 3 per cent over the coming year and by around 4.8 per cent a year over the next five years.

The survey comes as mortgage lender Halifax yesterday reported that house prices surpassed the £200,000 mark for the first time in June, with prices soaring by 1.7 per cent on a monthly basis and by 9.6 per cent compared to last year to £200,280.